THE PUBLISHED GUIDANCE PROGRAM NEEDS
ADDITIONAL CONTROLS TO MINIMIZE RISKS AND INCREASE PUBLIC AWARENESS

Issued on March 4, 2008

Highlights

Highlights of
Report Number: †2008-10-075 to the
Internal Revenue Service Chief Counsel.

IMPACT ON TAXPAYERS

The Office of Chief Counsel
(Counsel) is responsible for interpreting the tax laws through its published
guidance program, which is closely coordinated with the Department of the Treasury
Office of Tax Policy (OTP).† Although
Counsel has increased the level of attention it places on the published
guidance program, additional controls would further strengthen the process.† These changes would minimize risks and
increase public awareness of Counselís efforts to develop and issue
guidance.† A strong published guidance
program will help taxpayers understand and meet their tax responsibilities and
help the Internal Revenue Service (IRS) apply the tax laws correctly and
uniformly.

WHY TIGTA DID THE AUDIT

This audit
was initiated at the request of the Senate Finance Committee to evaluate
Counselís process and related controls for developing tax guidance, including
the pilot guidance program described in Notice 2007-17.† In coordination with the OTP, Counsel
launched a pilot program to request and evaluate public submissions before
considering changes to existing regulations.† Several news articles questioned whether the pilot
program was putting special interests before the publicís interest when
developing published tax guidance.

WHAT TIGTA FOUND

Counsel has intensified its focus to develop more tax
guidance, including starting a new pilot program to determine if guidance could
be issued using fewer resources.†
Counselís internal controls should ensure guidance projects are focused
on interpreting tax laws and addressing internal and external customer
needs.† However, additional internal
controls are needed to further strengthen the process, minimize risks, and
increase public awareness.

Although Counsel considers ideas from a wide variety of
sources when selecting projects for the annual business plan, it can improve
its written procedures to ensure that the most important issues are selected.† Also, Counsel does not track all open projects
on its guidance business plan.† As a
result, these projects have an increased risk of untimely actions, less
management oversight, and less public awareness.

Counselís computer information system is not a useful tool
to monitor projects.† Employees are not
always entering information, missing computer logic checks allow the input of inconsistent
data, and summary reports are not used to manage the projects.† As a result, management may not identify
delays in the process or gaps in activity.†
In addition, Counsel could not locate all the paper project files TIGTA
requested for this review, and some of the located files were missing
information.† A paper project file
provides a record of actions taken and supports decisions made during the
development of the guidance.

TIGTA believes the pilot program explained in Notice 2007-17
does not present an increased risk of influence by special interest groups in
the selection of guidance projects.† The
pilot program did not directly create tax guidance or circumvent existing
internal controls.† In our opinion, the
pilot program resulted in increased public awareness.† However, Counsel could have difficulty
objectively evaluating the overall success of the pilot program because it does
not have an adequate baseline against which to compare the results.

WHAT TIGTA RECOMMENDED

The Chief Counsel should expand written procedures for
developing and monitoring the guidance business plan, issue more frequent
updates to and establish a reasonable expectation in the Priority Guidance
Plan, publish the annual solicitation notice for guidance suggestions on any
Federal Government website readily available to the public, review and revise-if necessary-the written procedures for maintaining paper project files,
ensure that the new computer tracking system provides management with complete and
accurate information necessary to monitor the guidance program, and develop
written organizational procedures for the pilot program described in Notice
2007-17, including a methodology by which to evaluate the results if the
process is continued.

In
their response to the report, IRS officials agreed with six of the
recommendations and plan to take appropriate corrective actions.† Counsel partially agreed to the
recommendation to issue more frequent updates to the Priority Guidance Plan and
responded with an alternate corrective action.†
TIGTA agrees with the alternate action.

READ THE FULL REPORT

To view the report,
including the scope, methodology, and full IRS response, go to: